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Ruling 2000-3

Real Estate Conveyance Tax

FACTS:

Husband is the sole owner of a shopping center ("Shopping Center"). The fair market value of the Shopping Center is more than $2,000. On or after October 1, 1999, Husband will transfer, by deed, instrument or writing, to Wife an undivided one-half interest in the Shopping Center. Husband and Wife will form a corporation ("Corporation") and will contribute an amount in cash or marketable securities equal to 1% of the fair market value of the Shopping Center in exchange for 100% of the capital stock of the Corporation. Each spouse will receive 50% of the capital stock of the Corporation. Each spouse will transfer, by deed, instrument or writing, his or her undivided one-half interest in the Shopping Center to a newly formed limited partnership ("Limited Partnership") in exchange for a 99% interest in the Limited Partnership. Each spouse will receive a 49½% interest, as a limited partner, in the Limited Partnership. At the same time, the Corporation will contribute its assets to the Limited Partnership in exchange for a 1% partnership interest, as a general partner, in the Limited Partnership. Subsequently, there may be transfers of an interest in the Limited Partnership by Husband or Wife or both.

ISSUE:

Whether a transfer, by deed, instrument or writing, is exempt from real estate conveyance tax pursuant to Conn. Gen. Stat. § 12-498(a)(17), which provides that transfers or conveyances to effectuate a mere change of identity or form of ownership or organization are exempt from the real estate conveyance tax, where there is no change in beneficial ownership, if subsequent transfers or conveyances may be made that will result in a change in beneficial ownership.

DISCUSSION:

Conn. Gen. Stat. §12-494(a) imposes a tax "on each deed, instrument or writing, whereby any lands, tenements or other realty is granted, assigned, transferred or otherwise conveyed to, or vested in, the purchaser, or any other person by his direction, when the consideration for the interest or property conveyed equals or exceeds two thousand dollars…"

Certain deeds, instruments or writings are exempt from the real estate conveyance tax. Specifically, Conn. Gen. Stat. §12-498(a)(14) provides an exemption for deeds between spouses. Accordingly, the transfer, by deed, instrument or writing, of an undivided one-half interest in the Shopping Center by Husband to Wife is exempt from the real estate conveyance tax.

Effective October 1, 1999, Conn. Gen. Stat. §12-498(a) was amended to add a new real estate conveyance tax exemption for

(17) transfers or conveyances to effectuate a mere change of identity or form of ownership or organization, where there is no change in beneficial ownership.

1999 Conn. Pub. Acts 231, § 1. Prior to the enactment of this exemption, the Department treated a deed between an individual and his or her wholly-owned corporation, and a deed between partners and their partnership as subject to real estate conveyance tax. See, e.g., LSN-98, Technical Advisory Concerning Real Estate Conveyance Taxes, and SN 99(3), Effect of Federal Tax Law Changes on the Taxation of Limited Liability Companies and S Corporations and Their Shareholders. The Attorney General and the Superior Court have concurred. See 1989 Conn. Op. Atty. Gen. 89-020; and Bjurback v. Commissioner, 44 Conn. Sup. 354, 690 A.2d 902 (1996) and Vigliotti v. Commissioner, 44 Conn. Sup. 444, 692 A.2d 407 (1996).

The transfer, by deed, instrument or writing, of the Shopping Center by Husband and Wife to the Limited Partnership effectuates a mere change of form of ownership. The Husband and Wife each owned an undivided one-half interest in the Shopping Center before the transfer, and, because each spouse owns a 49½% interest, as a limited partner, in the Limited Partnership and 50% of the capital stock of the Corporation (which itself owns a 1% interest, as a general partner, in the Limited Partnership), each spouse owns, directly or indirectly, a 50% interest in the entity that owns the Shopping Center after the transfer. Accordingly, the transfer, by deed, instrument or writing, of the Shopping Center by Husband and Wife to the Limited Partnership is exempt from real estate conveyance tax under Conn. Gen. Stat. §12-498(a)(17).

Although Husband and Wife may make subsequent transfers or conveyances of their beneficial interests in the Limited Partnership, the real estate conveyance tax is a transactional tax. Any transfers or conveyances that are made after the initial transfer and that may change the beneficial interests in the Limited Partnership of Husband or Wife, or both, do not affect the exempt character of the initial transfer.

RULING:

A transfer, by deed, instrument or writing, is exempt from real estate conveyance tax pursuant to Conn. Gen. Stat. § 12-498(a)(17) where there is no change in beneficial ownership, even if subsequent transfers or conveyances may be made that will result in a change in beneficial ownership.